Forecast Aggregation Experiments Generate Jobs, GDP Predictions

Between April 17 and May 30, the NABE Foundation sponsored five forecast aggregation experiments: two forecasting the monthly employment numbers, two the monthly consumer price index figures, and one the quarterly gross domestic product.  The charts below show the results of the experiments versus the actual numbers.  These were the latest in a series of forecast aggregation experiments that the NABE Foundation has conducted with the Laboratory for Experimental Economics and Political Science at CalTech under the direction of Professor Charles Plott. 

The NABE Foundation is conducting these experiments to generate a set of data with which to evaluate whether this method for aggregating forecasts provides more insight into the forecast generating process and more value to economists, traders, and others ahead of the release of the official statistics than traditional forecast aggregation methods. 

The experiments involved a type of “pari-mutuel” betting process in which participants spend a limited budget of “house money” to purchase and place tickets on a range of possible outcomes.  In describing the experiment, former NABE board member and president of Macroeconomic Advisers Chris Varvares said that the “overall objective is to get a consensus view from the NABE Outlook panel of the entire probability distribution of possible outcomes rather than just an average of forecast modes.”

“We believe that this experimental approach to forecasting is potentially a useful and valuable addition to the NABE Outlook Survey, a quarterly consensus macroeconomic forecast of 50 NABE members,” said Ellen Hughes Cromwick, NABE vice president and chief economist at Ford Motor Company.

NABE would like to expand the frequency and range of indicators covered by these experiments, with the goal of moving this “out of the laboratory” and into the mainstream of forecast collection. That will require a regular source of funding because each forecast aggregation procedure requires a sum of money that will be distributed to the participants in accordance with the percentage of tickets they hold in the range corresponding to the actual outcome. Interested parties are encouraged to contact the NABE office at nabe@nabe.com or 202-463-6223.

FAE held on April 13, 2007
Core CPI-U for March 2007

FAE held on April 25, 2007
GDP for 20007Q1 (Advance)

FAE held on May 2, 2007
Nonfarm Payroll Employment for April 2007

FAE held on May 11, 2007
Core CPI-U for April 2007

FAE held on May 30, 2007
Nonfarm Payroll Employment for April 2007